Gauging The Possible Effects Of Sequestration On Alexandria Workers And City Finances

By Bruce Johnson, retired Cheif Financial Officer, Acting City Manager, Chief of Staff of City if Alexandria

Because we live in a regional economy, the impact of the budget cuts caused by the “sequestration” of funds beginning on March 1, has to be evaluated not only by looking at the effects on Alexandria residents, who largely work outside of the City, but also on those who work in Alexandria, who mostly commute from outside of Alexandria. The Alexandria workforce can be seen from these two angles – those who work in Alexandria and those who live in Alexandria. No matter which angle is chosen the impact is likely to be significant if sequestration occurs and it is not modified in some significant fashion over the coming months.

First let’s understand the labor market in Alexandria. According to Census Bureau statistics[1] only 18.5% of the 71,398 employed Alexandrians worked in Alexandria in 2010. Higher percentages of Alexandrian workers worked in the District of Columbia (29.2%) and Fairfax County (24.2%). 10.3% worked in Arlington County and 17.8% worked elsewhere. The same data indicate that of the 97,333 workers employed in Alexandria in 2010, only 13.6% lived in Alexandria.[2]

To understand the impact of sequestration on Alexandrians, one must look at the impact of sequestration on Federal employees and Federal contractors located not only in Alexandria, but also in the surrounding jurisdictions of the District of Columbia, Fairfax and Arlington Counties. The most recent data available indicate that the Federal government employs about 14.1% of the workforce in Alexandria. However, because the average wage for federal employees is higher, approximately 21.7% of the wages paid are paid to Federal employees in the City of Alexandria. In the District of Columbia, where nearly 30% of Alexandria workers work, 30.1% are employed by the Federal government and Federal wages constitute 38.5% of total wages. In Arlington County, 17.0% of the workforce are Federal workers and Federal wages constitute 23.9% of total wages. In Fairfax County only 3.3% of employees are Federal workers and Federal wages constitute 4.4% of total wages.

As you would expect, Arlington County has a large number (9) of Federal organizations in its top 50 employers. It also has 11 primarily Federal government contractors in its top 50 employers including General Dynamics (formerly Vangent and formerly Pearson Government Solutions) (10), Pae Government Services (11), SRA (16), Science Applications International, (20), Intergrated Microcomputer Systems, (24), Boeing Co. (29), Anser (34), Lockheed Martin (35), Aegis LLC (37), CACI Cms Information Services (40) and Stanley Associates. (45).

Although there are no Federal contractors among the top 50 employers in the District of Columbia 19 of them are Federal organizations, and 6 are D.C. government organizations. Of the other 25, 13 are hospitals or other non-profits.

Alexandria’s top 50 employers include 6 Federal organizations. One of those and Alexandria’s largest employer is the Patent and Trademark Office, which may not be hurt much by sequestration, because it is funded by dedicated fees and not general appropriations. Alexandria does not have as many private sector organizations primarily involved in Federal contracting as Fairfax and Arlington counties. Among the 6 we have are the Institute for Defense Analysis (7), Center for Naval Analysis (10), Systems Planning and Analysis (15), the Titan Corp. (37), Alion Science and Technology (42) and Systems Research and Application (44).

In summary, given the large percentage of our labor force and wages that are connected to the Federal government, either here in Alexandria or in the neighboring jurisdictions where we primarily work, the prospect of extensive Federal civilian furloughs throughout the remainder of the year will damper, if not reverse the recent modest economic growth we have seen after the great recession. Furthermore, cutbacks in Federal contracting that may have already begun -- and will build to greater levels the longer the sequestration continues -- offer the 2nd of what will be a one-two punch to our local economy and economic welfare.

The impact on City government finances will come most quickly in the form of declining hotel and restaurant meal taxes and this effect can be monitored in the City’s monthly financial reports. Sales tax receipts may also show weakness more immediately as a consequence of sequestration. The value of our automobiles, upon which the City’s car tax is based, is unlikely to be much affected in the near term because the blue book values used are national in scope and will not be affected by Washington area economic problems alone. The City is not very dependent on Federal grants directly except in the area of Housing assistance and K-12 education. Housing funding has already declined, and K-12 Federal education grants are winding down for other reasons in the next few years. Those grants may be further affected by sequestration, but that won’t be a major concern by itself. The Commonwealth also faces significant economic and budgetary problems due to sequestration, but again, the City is not very dependent on State aid except for K-12 education. Those reductions would take a while to reach full fruition and probably be delayed to FY 2015 as the State’s FY 2014 budget is already under development.

The most dangerous effect on the City’s finances would be on property taxes. The real estate market, which creates the lion’s share of City revenue through the real property tax, would be affected in gradual manner, but it is difficult to imagine that it would not be affected at all by sequestration. This real property tax impact would probably not be very evident until the City’s FY 2015 budget given the time lags involved in Federal furloughs and other budget cuts. Because this would be the biggest potential impact, it is worth tracking very closely, not only through residential sales prices, but in the apartment rental market as well.

A more complete but dated discussion of the interrelationship of Federal budget deficit reduction actions, including sequestration, and the City’s finances can be found at the City’s website on the Finance Department’s webpage under “Financial Reports” in a memorandum dated August 25, 2011 entitled “Update on Federal Reduction Actions, Credit Rating Agency Actions and Indirect Effects on the City.”

[1] As reported on the Virginia Employment Commission website under the Labor Market Information Community Profile site for Alexandria.

[2] By the far the biggest majority of people working here commuted from Fairfax County (31.4%), with 8.3% coming from Prince William County, 8.0% coming from Prince George’s County, 6.4% coming from Arlington County, 6.4% coming from the District of Columbia and 25.9% coming from elsewhere.

[3] From the Virginia Employment Commission Quarterly Census of Employment of Wages (QCEW)

One Response to “Gauging The Possible Effects Of Sequestration On Alexandria Workers And City Finances”

"The most dangerous effect on the City’s finances would be on property taxes."

Hogwash. Alexandria won't take a haircut on anything. You'll just raise the assessments and millage rate on the property owners who are left, assuming anyone leaves. (Regardless, you'll still raise the millage rate.) How about you close some of these ridiculously bad schools? How about the City stop engaging in such litigious behavior against its residents, i.e the waterfront debacle? Then pass the savings on to the homeowners.